Book: Enjoy It - Strategic & Exit Planning

"Enjoy It_ Business Succession & Exit Planning" by Craig West

I. Overview:

This book serves as a 21-step guide for business owners in Australia to navigate the complex process of business succession and exit planning. Craig West emphasizes a holistic approach that aligns personal and financial goals with business performance and value. The core message is that successful exit planning requires preparation, strategic action, and a clear understanding of the business's worth and potential. The book aims to guide business owners, particularly Baby Boomers nearing retirement, through maximizing their business value, protecting their assets, and transitioning successfully into the next phase of their lives.

II. Key Themes and Ideas:

• The Importance of Exit Planning: West argues that exit planning should be an integral part of every business owner's strategic plan. He highlights the increasing number of Baby Boomers approaching retirement and the significant number of businesses expected to be sold or passed on in the coming years. He underscores that over 50% of exits happen due to unforeseen circumstances like death, illness, or financial distress, emphasizing the need for proactive planning.
• "Exit planning should be part of every business owner’s strategic business plan. We should always be prepared to get hit by that proverbial truck."
• The 21-Step Process: The book outlines a detailed 21-step process, broken down into five stages:
• Stage One: Identify Value: Understanding personal goals, assessing the current state of the business, and determining its worth.
• Stage Two: Protect Value: Focuses on financial planning, mitigating risks from unplanned events, and de-risking the business.
• Stage Three: Maximise Value: Involves strategic planning, optimizing the business model, improving systems and procedures, enhancing marketing and sales, and addressing corporate governance.
• Stage Four: Extract Value: Deals with tax planning, documentation, and the actual liquidity event (sale or transfer).
• Stage Five: Manage Value: Focuses on ongoing investment planning.
• Defining a "Business" vs. a "Job": West stresses the importance of building a true business that can operate independently of the owner. He distinguishes between a business and a situation where the owner has simply "bought themselves a job." A key indicator is whether the business can continue to function and generate income if the owner is absent for an extended period.
• "An important part of this process is establishing what you have to sell — do you have a business, or are you self-employed? In some cases business owners who have started or bought a business have simply bought themselves a job... The day you stop working, the money stops."
• Valuation Methods: The book explains different approaches to business valuation, including financial valuations (EBIT multiple, liquidation value) and strategic valuations. It emphasizes that a strategic buyer may be willing to pay a premium above the financial valuation for strategic reasons such as market access, technology, or preventing a competitor from acquiring the business. The VMB-RMIT Index is also mentioned as a tool for understanding market values.
• "A strategic valuation on the other hand, does not necessarily represent the market value of the business, but what that business is worth to the acquirer for strategic reasons. A strategic buyer is likely to pay well above the financial valuation of the business."
• Risk Management: West highlights the critical role of risk management in determining business value. He emphasizes that identifying and mitigating risks can significantly increase the valuation multiple. The book provides tools and examples for assessing various risks, such as industry risk, financial risk, and operational risk.
• "In valuation, there’s a whole stock of methodologies and ways to value a business, but at the end of the day it comes down to two things: reward and risk… But if we can identify all of those risks, we can show them the relationship between risk and the valuation multiple. If we can improve the risk, the valuation will increase."
• Exit Options: The guide explores various exit options, including:
• Sale to family members
• Sale to key employees (Management Buy-in/Buyout - MBI/MBO)
• Sale to other shareholders
• Strategic sale to a competitor or related business
• Sale to a listed company
• Liquidation (as a last resort)
• Strategic Planning and Business Model: The book emphasizes the importance of defining a clear business model (boutique vs. scale) and making strategic changes to enhance value. It encourages business owners to focus on growth, efficiency, and innovation.
• The Importance of a Team with an Ownership Mindset: The document touches upon the significance of building a team that "thinks and acts like business owners". This involves incentivizing employees and fostering a culture where everyone works together for the mutual benefit of the business. DISC profiles are mentioned as tools to understand team dynamics and optimize performance.
• Due Diligence and Documentation: West stresses the need for accurate, up-to-date, and well-organized documentation to facilitate the due diligence process. An Information Memorandum (IM) is presented as a key document for attracting potential buyers and showcasing the business's value proposition.
• Financial Analysis: The process underscores a need to look at Financial Health, and improve in the areas where the business is underperforming, so that the business value and sale price will increase. "The tool focuses on measurements that are relevant to your business — in this example eleven measures were deemed not applicable, and eight were favourable, so the business owner can see clearly that they need to focus attention on improving the three unfavourable measures — net profit margin, debt levels and collecting cash from customers more quickly. This business scored a B+, which is above average for a small to medium business"
• Tax Implications: The document stresses the importance of seeking professional tax advice throughout the succession planning process to minimize tax liabilities and take advantage of available concessions.

III. Target Audience:

The book is primarily aimed at small to medium-sized business owners in Australia, particularly those in the Baby Boomer generation who are approaching retirement and considering selling or transferring their businesses. It is also relevant to younger business owners who want to build a business with future sale in mind.

IV. Potential Applications:

• Business owners seeking guidance on exit planning.
• Advisors (accountants, financial planners, lawyers) who work with business owners on succession planning.
• Individuals considering purchasing a business.
• Students and researchers interested in business succession and exit strategies.

V. Caveats:

• The material is presented as general advice and readers are urged to seek professional advice specific to their individual circumstances.
• The book was published in 2018, and some of the economic data (e.g., exchange rates, market trends) may be outdated.
• The book is specifically tailored to the Australian business environment.

This briefing document provides a comprehensive overview of the key themes and ideas presented in the excerpts from Craig West's "Enjoy It_ Business Succession & Exit Planning." It can serve as a useful resource for anyone interested in understanding the complexities of business succession and exit planning in the Australian context.

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